Season 8 was a very up and down season, with some very good and more episodes (though few on the same level as the best of Seasons 1-5 and 7) but also a lot of average and less ones with the worst ones being misfires. What it did do consistently very well in, and it was an aspect that got better and better with each episode they featured in, was the characterisation of the Student Six characters. Which was a lot more consistent than the character writing of the regulars and got better each time.
"What Lies Beneath" is one of their best episodes, most were characters that were interesting from as soon as they were introduced and the season did so well in expanding upon their characters with each episode. It is also one of the best of Season 8, easily, and one of the few episodes of the second half (which on the whole was more inconsistent than the first one) of the season to be great. Would go as far to say that "What Lies Beneath" is the first great episode in a while up to this point, the best since "The Hearth's Warming Club" at any rate.
Is it a perfect episode? Not quite. The weakest character here is Sandbar, in fact the only character to not do much for me in "What Lies Beneath". His fear on paper is actually relatable and actually see a lot of myself in his way of thinking regarding it, but a lot more could have been done with it and it doesn't go with the very repetitive and fairly pointless way he behaves throughout the episode.
Thank goodness that the rest of the Student Six are handled wonderfully. Including Gallus, who at the beginning of the season was actually the least interesting but since "The Hearth's Warming Club" he has grown as a character psychologically. While the fears of Silverstream and Ocellus are fascinating from a psychological point of view, the character that grows the most is Smolder. Her development is very meaty here and she is shown to be a lot more complex than she appeared to be in other episodes, anybody who has a vulnerability underneath their tough exterior that they're ashamed of are going to identify with Smolder's character and fear which the episode handles brilliantly.
As far as Season 8 episodes go, "What Lies Beneath" is easily one of the best written. It is incredibly thought provoking in dialogue without rambling, and has both entertainment value and emotional impact. There is nothing simplistic or over complicated about it, and appeals to all ages. The exact same applies describing the story, while as said a brilliant job is done expanding upon the Student Six characters in development and providing insight into their way of thinking. Only Sandbar disappoints in this regard.
Furthermore, the animation is beautifully done throughout in all senses. The music is dynamic and very fitting with the atmosphere, while of the uniformly great voice cast Shannon Chan-Kent's deeply felt and layered voice work for Smolder is particularly striking.
Great episode overall and one of the few of the second half of Season 8 to be so. 9/10.